Sam Bankman-Fried directed to executives to hide $8 billion in liabilities

We may have just begun scratching the surface of the fraud that FTX had become.
Ameya Paleja
FTX Founder Sam Bankman-Fried and officers in court
Bail Hearing Held For FTX Founder Sam Bankman-Fried

David Dee Delgado / Stringer/Getty Images  

Prosecutors of the Commodities Futures Trading Commission (CFTC) that filed a lawsuit against former billionaire Sam Bankman-Fried (SBF) have alleged that the crypto exchange's executives hid $8 billion in liabilities in fake customer accounts, Business Insider reported.

SBF's directed FTX was the world's second-largest crypto exchange before a liquidity crunch pushed the company into bankruptcy. SBF, who had previously alleged that the company was in safe hands and was facing trouble due to conditions created by competitors, was later arrested in the Bahamas as irregularities in FTX's accounts began coming to the fore.

As it turns out, SBF's trading and investment firm, Alameda Research, borrowed billions of dollars from the cryptocurrency exchange FTX to invest in multiple deals and trades. While these investments did not end well, it has now come to light that the money came from customer deposits.

Hiding liabilities under fake accounts

Given the scale of FTX's business presence, the reluctance of Binance, the world's largest crypto exchange, to help it safeguard the business, and the former's sudden collapse in a matter of days has raised doubts about where the investor money went.

On November 11, SBF filed for Chapter 11 bankruptcy protection for FTX and 130 of its affiliated companies following its liquidity crunch. However, prior to this, FTX appeared to be in good financial health, and the liquidity crunch should not have led to the business's fall.

Investigators have now alleged that SBF himself directed FTX executives to move Alamdea's $8 billion in liabilities to an unknown customer account on the crypto exchange's system. This was a subaccount of Alameda but did not have an email identifier. SBF referred to this account as the "weird Korean account" or "our Korean friend's account," and notes tied to this account have been labeled "FTX fiat old," Business Insider said in its report.

Sam Bankman-Fried directed to executives to hide $8 billion in liabilities
Behind bars - the future of SBF

The prosecutors allege that this enabled Alameda to hide its negative balance on FTX, and the account had the same privileges as those of Alameda accounts, including exemption from liquidation characteristics. Earlier this month, Bloomberg also reported that FTX's former engineering director had created a code that would conceal Alameda's ballooning liabilities on the exchange.

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Former executives reveal the truth

The charges of conspiracy to commit wire fraud and money laundering could see former CEO of FTX, Caroline Ellison, serve up to 110 years in prison while Gary Wang, co-founder of FTX, would need to serve at least 50 years in prison. Both the former executives are now cooperating with the federal authorities in a bid to reduce their sentences.

News that these SBF's former teammates had now turned on him was kept secret to ensure that SBF, who was arrested in the Bahamas, would not fight his extradition to the U.S. Prior to its collapse, FTX was valued at over $32 billion, and SBF, the altruistic billionaire who had spent money saving other crypto companies, had promised that not only would his company sail through the difficulties, but the crypto winter had likely passed.

Now, with $100,000 in his account, SBF has been released on a $250 million bail. If proven guilty, SBF could face 115 years in prison, a Time report said.